Altair’s Q2 solid, Q3? Hmmm

Aug 20, 2019 | Hot Topics

Altair has had a rough time since announcing their Q2 results earlier this month, with the stock down 10% since the news hit the wires. Why? Investors were seemed OK with the Q2 report but were underwhelmed by the company’s guidance for Q3 and the year as a whole. More after the details:

  • Total revenue in Q2 was $107 million, up 14% as reported and up 18% in constant currencies (cc)
  • Software revenue was $84 million, up 20% (up 23% cc)
  • Within that software total, license revenue was $57 million, up 21%
  • Client engineering services revenue was $12 million, flat as reported. This reflects Altair’s stated intention to perform only added-value services
  • It sounds like SimSolid, Altair’s meshless simulation solution, is really taking off. Mr. Scapa said that “SimSolid usage has grown 10x in the last 5 months”
  • If you’re keeping track, Mr.Scapa said that SimSolid is the fastest-growing product in Altair’s portfolio, with Inspire “in second place, demonstrating the significant opportunity for simulation with designers and design engineers”

Altair CEO Jim Scapa told investors that he saw a deterioration in his end-markets during the quarter (a bad thing) and a faster than expected switch by Datawatch customers to subscriptions (arguably a good thing). How much faster? Datawatch software revenue in Q2 was 91% recurring, up from 61% at the end of 2018. Together, these trends led the company to lower their FY 2019 total revenue guidance by $10 million. But that’s still very strong: Total revenue growth of 16% to 17% and software revenue growth of 20% to 22%.

For Q3, Altair expects software product of about $80 million, up around 24% and total revenue of $104 million up 20% from 2018.

CFO Howard Morof added more on what is happening in Altair’s end-industries, especially automotive: “trade disputes with China and others are resulting in a stronger dollar, affecting our manufacturing customers … [as a result] we expect a slight [negative] impact on software growth for the rest of the year, especially since a healthy percentage of our business is international”. [That’s a paraphrase –Ed.]

Q2 was actually quite good, economic uncertainty and license transitions notwithstanding. Altair clearly feels that Q3 and the rest of 2019 will continue to feel these effects even as the core simulation business continues to drive revenue growth.

Update: some of you received this via email with the title chopped off — sorry to hit your inbox with a subject line of just “Altair”. Not sure how that happened; we’ll try to figure it out!